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Multi talented

The aspiration of any financial adviser is surely to provide an unparalleled quality service to clients and to build new client contacts over time.

But pressures are inc-reasing in the financial world. Dealing with complex financial issues as well as with increasingly sophisticated and demanding customers is placing an unenviable strain on IFAs as they seek to discharge their respon-sibilities in an industry moving through unprecedented change.

Matching client needs and expectations to a growing array of specialist financial instruments from pro-duct providers is not easy. Multi-manager investment products are one area seeing significant growth as IFAs increasingly acknowledge limitations on their time and embrace the growing concept of outsourcing.

Recognition of a rapidly changing environment for financial services, combined with a more demanding regulatory framework, is hastening the use of third-party multi-managers.

At the heart of any inv-estment solution is the issue of risk reward. It is impossible to reap the former without taking on some of the latter. Multi-managers seek to reduce equity and bond portfolio risk through diversification across investment groups and investment styles.

Many other factors support the strong growth in multi-managers. First, there is a growing acceptance that there is far more to asset allocation than basing investment decisions solely on recent trends. In the same way that IFAs have come to acknowledge the need for a more structured app-roach, so, too, have multi-manager providers recognised the need to offer a range of tailored investment options through specific investment strategies or fund of funds.

Other than gauging asset allocation decisions correctly, a big component of any potential outperformance is to be found in the correct selection of funds and also knowing when to increase the commitment to a certain manager style at the expense of another.

To help such decisions, multi-managers have at their disposal sophisticated software packages to assist with portfolio construction, which is often an overlooked skill.

There is also increased uncertainty relating to fund consolidation in a wider industry context. Merger and acquisition activity is causing much displacement among fund managers and keeping up to speed with these developments is a full-time job.

Monitoring who will be running merged funds or how the departure of key fund managers might affect the prospects for individual funds is a major challenge, not to mention the time involved in keeping the client informed and processing necessary paperwork when change demands a rethink.

Add the difficulty of regular ongoing monitoring of monthly performance as well as continually updating databases to account for new funds and assessing the impact on successful funds of cash inflows and it is clear why multi-manager services are now run by dedicated teams whose job it is to regularly track these developments, absolving the IFA of these increasingly time-consuming tasks.

The pooling of client portfolios into a professionally managed multi-manager service or fund of funds also gives portfolio managers scope to reduce the underlying costs of buying funds to the obvious benefit of clients. Often, managers can negotiate discounts not normally available to the IFA.

A multi-manager solution also potentially red-uces the amount of written reporting required by the intermediary to the client.

Consolidated half-year and yearly reporting providing full economic and investment views and det-ailing portfolio activity as well as sophisticated CGT packages make life a lot easier for the adviser, enabling him or her more time to spend with existing clients and to develop new business opportunities.

Just as a relationship between a client and the IFA depends on the quality of service and advice, inv-estment management companies should not become complacent about fund flows from the IFA.

While retaining control of the client, the IFA has to be able to demonstrate that there are benefits to the client of moving to a thirdparty multi-manager. Of course, long-term consistent performance is crucial in this respect but so, too, is the quality of the admin system, the reporting and the general level of support and service provided to the IFA.

If fund managers do justice to the trust placed in them by the IFA in a professional way, then all will reap reward from providing a quality service.


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